The Meaning of Statement of Account
A statement of account is an important tool for investors, regulators, suppliers or lenders for following a company's financial activities. An account statement is similar to a firm's income statement because it typically lists revenues and expenses, and calculates the account's profit or loss, or ending balance.
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Definition
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A statement of account is a summary of transactions occurring during an accounting period, such as a month, quarter or year. An account statement provides insight into a client's or a business partner's financial standing. For instance, a risk manager's personal securities, or brokerage, statement of account for a month indicates that he bought $250,000 worth of bonds, sold stocks valued at $125,000 and transferred $25,000 from his checking account. At the end of the month, the statement of account shows a portfolio value of $150,000.
Significance
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A statement of account is a significant report because it summarizes a client's or a financial institution's periodic data. An account statement also helps a regulator or the company's top leadership evaluate a business partner's financial strength and profitability. A lender who reviews a potential borrower's income statement of account can appraise default (or credit) risk based on expense amounts and revenue levels. (Credit, or default, risk is the risk of loss that arises from a partner's inability to reimburse a loan due to bankruptcy or temporary financial problems.)
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Types
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Types of account statements may vary, depending on the account, legal requirements or counterparty (business partner) demands. A bank account statement lists a client's transactions during a period, as well as charges and additions that the bank made to the account (fees or commissions, for example). A securities, or brokerage, statement of account details financial market transactions that a client made during a period. A credit card account indicates items that a client bought on credit and the lender's interest charge.
Time Frame
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A statement of account may relate to financial activities occurring within a month or a quarter. For instance, a financial institution that reviews a loan applicant's data may require bank and credit card statements of account for the two previous quarters to evaluate the borrower's levels of expense and income during that period. A statement of account also may be annual. As an illustration, an insurance company may ask a firm to provide a yearly bond transactions' statement of account before providing credit risk coverage.
Misconceptions
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A statement of account is distinct from an accounting statement. A financial, or accounting, statement may be a balance sheet (or statement of financial position), a statement of profit and loss (P&L, also called a statement of income), a statement of cash flows or a statement of retained earnings (also known as an equity statement). An accounting statement is more comprehensive and detailed than a statement of account.
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References
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